Public Accounts Committee publishes report on the BBC's efficiency programme

The Commons Public Accounts Committee publishes its 73rd Report of Session 2010-11, on the basis of evidence from the BBC and the BBC Trust.

Richard Bacon MP, Member of the Committee of Public Accounts, yesterday said:

"When negotiating the television licence fee settlement in 2007, the BBC claimed that it could make no efficiency savings beyond 2008. But it now forecasts that, by 2012-13, it will have delivered annual efficiency savings of £560 million and plans to make further annual savings of £400 million by 2016-17.

It took the pressure of a licence fee settlement to force the BBC into setting a target of 3 per cent annual savings, which it is comfortably on track to achieve. The BBC’s assumptions about what it could deliver were unambitious.

Those who watch and listen to the BBC's services will want to know that the savings the BBC has made have not affected the quality of its output. The BBC cannot give them that assurance. As it moves from making efficiency savings to cutting services, the BBC needs to be open about how these cuts will impact on services and what it will do if quality suffers too much.

The BBC must maximise its commercial income. But the BBC’s plans for this are unambitious when placed in the context of the financial pressures on the broadcaster. We expect a clear explanation of why a £40 million a year increase in commercial income is the limit of what can be achieved."

Richard Bacon was speaking as the Committee published its 73rd Report of this Session which, on the basis of evidence from the BBC and the BBC Trust, examined the implementation of the efficiency programme and plans to make future savings. The Committee was pleased to hear the BBC acknowledging that scrutiny from this Committee and the National Audit Office has driven it to be more outward-looking in challenging what its services should cost.

In 2007, the BBC Trust set the BBC the target of delivering efficiency savings of 3% a year for the five years up to, and including, 2012-13. This level of saving was necessary to live within the licence fee set by the Department for Culture, Media and Sport for the period. To achieve its target, the BBC needs to be delivering annual savings of £487 million by the end of 2012-13.

The BBC has managed the efficiency programme well and is forecasting that it will deliver £560 million of annual savings by the end of 2012-13, comfortably exceeding its target. It took the pressure of the licence fee settlement, however, to force the BBC into finding these efficiency savings.

When negotiating the licence fee, the BBC had claimed that it would be at the "efficiency frontier" by 2008 – in other words, that it would not be able to deliver any efficiency savings after that without the development of new technologies. Yet the BBC found almost half the required savings in the first year of its programme, showing that its earlier pronouncements about the limited scope for savings had been very wide of the mark. By underestimating the scope for efficiency improvements, the BBC risks undermining public trust in its financial management and openness, and failing to deliver value for money. It also leaves itself in a weak position to argue that future cuts to its budget could damage services to the licence fee payer.

When identifying savings under its efficiency programme, the BBC did not prepare a detailed analysis of the costs of its services and the value they bring to licence fee payers. Such an analysis is vital in deciding where future cuts should fall and should be based on a rounded assessment of feedback from licence fee payers about the value they place on services. Although the BBC has delivered its efficiency savings whilst maintaining overall levels of performance it does not fully understand the impact individual savings have on the quality of its services. This is particularly important when considering cuts to local radio, which provides a different type of service from commercial alternatives - and we welcome the BBC Trust’s report, published after our hearing, recognising the importance of the BBC’s local radio services.

In the future the BBC will be making cuts as well as delivering efficiency savings and understanding the relationship between cost and performance will be increasingly important. The BBC exists to serve licence fee payers and cuts to services should have the least possible impact on the audience.

As a result of the 2010 licence fee negotiations, the BBC now needs to find a further £700 million annual savings by the end of 2016-17. In October 2011 the BBC published Delivering Quality First which set out its proposals for meeting this challenge. The BBC plans to deliver savings of £400 million through further efficiencies and £205 million by cutting services, but its plans include a contribution of only £40 million from increasing commercial income.